Legal Updates & Commentary for Tax & Estate Planning
In two earlier posts, we discussed how the division of a closely held, corporate-owned business may be effected on a tax-free basis. The IRS recently issued a ruling that illustrates the variety of circumstances in which such a division may be appropriate and feasible.
Distributing was an LLC that was treated as an S…
In our last post, we indicated that the business owner’s guiding principles in evaluating any transaction in which he or she may engage with the business should be the following:
– Would an unrelated third party have entered the transaction on comparable terms?
– Is the taxpayer’s behavior consistent with what one would expect…
With this post, we continue to examine transactions between the closely-held business and its owners. As we saw last week, special scrutiny is given in situations where a business is controlled by the individual with whom it engages in a transaction because there is a lack of arm’s-length bargaining. That is certainly the case…
Transactions between a closely held business and its owners will generally be subject to heightened scrutiny by a taxing authority, and the labels attached to such transactions by the parties have limited significance unless they are supported by objective evidence. Thus, arrangements that purport to provide for the payment of compensation, dividends, rent, interest, etc.,…
Many of us have encountered variations of the following scenario: a parent owns and operates a business; his kids are employed in the business; as the kids mature and become more comfortable and established in the business, some of them may want to assume greater managerial responsibility and to have a greater voice in the…
Over nearly three decades, I have reviewed the income tax returns of many closely held corporations and partnerships. Quite often, on Schedule L (the Balance Sheet), I will see an entry for “loan from” shareholder or partner, as the case may be. I sometimes pause before asking the next series of questions: did the board…
In an earlier post, we noted that a parent who owns a business faces some difficult issues regarding the disposition of that business among his or her children. Among the options to be considered is a sale of the business, which would allow the parent to treat the children equally, inasmuch as each may…
A recapitalization is an exchange between one corporation and its shareholders or security shareholders. It has been described as a “reshuffling of a capital structure within the framework of an existing corporation,” and it is one of the most common forms of reorganization encountered in the case of a closely-held business. Simple examples include the…
